What Stablecoins’ Crisis Means for Cryptocurrency Investors

Stablecoins should be the portion of the crypto market that’s not vulnerable to wild value swings and tendencies that dominate assets like Bitcoin (BTC). However, this week’s crash by leading stablecoins shows that the most complex financial facets that joined the marketplace during impressive bullish runs are yet to meet tests amid leaner phases.

TerraUSD (UST) is among the many stablecoins designed to keep the $1 market price. However, the token witnessed massive declines off that level. The unwelcomed turmoil saw billions of dollars leaving the marketplace. The UST de-peg triggered spillover impacts to other digital tokens fighting to retain investors’ confidence following plummets from 2021 ATH.

Campbell Harvey of Duke University’s Business school stated that the current situations mean a painful lesson for individuals that invested in Terra and the UST infrastructure.

He added that market turmoil helped showcase vulnerabilities within the system. That wasn’t apparent amid boom times. Harvey believes the market could still fall in the coming year if the current turbulence had not emerged.

The rule of investing in risky asses like crypto involves a long-term standpoint of the marketplace. For instance, individuals eyeing 20 years down the line might stay unbothered with value losses within a week.

Moreover, it is worth checking whether factors that triggered a crypto market crash shift your long-term view concerning your investments. As the cryptocurrency market already experienced drawdowns as US regulators explored rising inflation, UST’s lifetime flop added to the downside pressure.

What Happened

UST’s creators introduced LUNA to maintain the stablecoin’s value. Ideally, UST holders can trade the assets for an equal LUNA amount. Meanwhile, LUNA’s price relies predominantly on market conditions, unlike UST. That was fine when market players had faith in LUNA’s value. However, this narrative changed as investors dumped UST amid a market crash.

Recent months had UST developers purchasing BTC worth dollars to strengthen the stablecoin’s value. However, the escalating crisis in the market saw them selling some of the Bitcoin acquisitions, adding fuel to the market-wide sell-off.

Wednesday’s afternoon sessions had LUNA dropping under $2, a massive fall from April peaks of beyond $115. Meanwhile, UST remained far from regaining its US dollar peg.

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